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Budget watchdog warns Ontario Liberals about continued deficits

Balancing the budget will likely require cuts or new taxes, says Financial Accountability Office


 
Ontario Finance Minister Charles Sousa, right, delivers the Ontario 2016 budget next to Premier Kathleen Wynne, left, at Queen's Park in Toronto on Thursday, February 25, 2016. (Nathan Denette/CP)

Ontario Finance Minister Charles Sousa, right, delivers the Ontario 2016 budget next to Premier Kathleen Wynne, left, at Queen’s Park in Toronto on Thursday, February 25, 2016. (Nathan Denette/CP)

TORONTO — Ontario’s government spending watchdog says there is “significant risk” the Liberals will not be able to eliminate a $4.3 billion deficit next year as promised.

In his fall economic statement two weeks ago, Finance Minister Charles Sousa said he would dip into a reserve fund to ensure a balanced budget in 2017-18.

But the Financial Accountability Office says the Liberals are relying on “optimistic assumptions for revenue growth and program spending restraint.”

The arms-length agency says the government’s revenue projection is $2.8 billion higher than its estimate for 2016-17, and $5.2 billion higher by 2018-19.

The FAO says the government has a variety of tools that it could use to “temporarily improve” the budget to balance in 2017-18.

But it warns maintaining a balanced budget beyond next year “will likely require additional measures to raise revenues or reduce expenses,” which would mean new or increased taxes and cutting government programs.

It says the Liberal’s forecast for both personal income tax and corporate tax revenue is “significantly higher” than its projection, and questions how the government will pay for new promises it made this session.

The FAO expected government spending would increase $1.8 billion annually to fund the Liberals’ promises in September’s throne speech to discount eight per cent of the HST on hydro bills and create 100,000 child care spaces.

But Sousa’s fall economic statement reported program expense only $0.4 billion higher in 2018-19 compared to the 2016 budget, “suggesting that these new initiatives may be partially funded though reallocations from existing programs or the contingency funds,” concluded the FAO’s report.

“Government officials indicated that since the policy details for the child care expansion are still being developed, the final cost of the program has not been fully incorporated into the fiscal plan.”

Sousa reported Ontario’s net debt-to-GDP ratio will peak at 40.3 per cent in 2016-17 and then edge down to 39.3 per cent by 2018-19. But the FAO projected the debt-to-GDP ratio would hit 41 per cent, primarily because of “continued deficits beyond 2017-18.”


 

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